Is Digital Investment a Good Investment?
CIO Review Europe | Wednesday, February 01, 2023
With its growing importance and demand, Digital Infrastructure is an appealing asset class for sophisticated investors
FREMONT, CA: Owning enduring, high-quality companies that capitalize on the trend of widespread data consumption—the digitization of everything—is possible through investing in digital infrastructure. One can demand constant, frictionless access to all of their data. In the past 50 years and in the coming 50, one of the most significant investment themes has been enabling this access. A latticework of digital infrastructure resources that power that vision enables it to continue to be linked to a pervasive, high-quality internet experience.
Investing in digital Infrastructure will consume more data in the future and that data requires storage and transportation. The demand for digital infrastructure will grow as long as people want more, better, faster, and everywhere. To be precise, digital infrastructure is like toll roads, ports, and rails of data.
Stay ahead of the industry with exclusive feature stories on the top companies, expert insights and the latest news delivered straight to your inbox. Subscribe today.
The characteristics of high-returning digital infrastructure investments are abbreviated by a few traits, for instance, Growth, Soundness, and Value.
Growth
The digital trend of more, better, faster, everywhere indicates a growth trend. To convey and store data, each of those features demands more space. Identifying businesses that are exposed to long-term growth in data consumption is a core tenet of thoughtful digital infrastructure investment. Recent growth is the most accurate predictor of future growth. Businesses will want to avoid outdated, legacy telecom assets such as copper phone lines and DSL. Users require modern assets that are in high demand and are difficult to replace. Growth is a critical component of Digital Infrastructure investment.
Soundness
Akin to well-located real estate, high-quality infrastructure assets are reliable, significant buildings that can support reasonable debt burdens that further boost equity returns. A good concept, nevertheless, can be misused. A well-considered investment approach for digital infrastructure can reduce exposure to businesses that have too much debt, are too tiny or unproven, or lack stable, recurring revenue. The conveyance of data involves many different technologies, such as semiconductors or routing equipment, yet these assets frequently have relatively short useful lives. This last fact is crucial to the concept of infrastructure. Building it once, and monetising it for decades best describes ideal digital infrastructure assets. Examples of durable assets that can be used for decades with nominal maintenance costs are, cell phone towers, fibre optic cable, and data centres, while routers and servers are contingent on constant antiquity and the associated upgrade cycle.
Value
Markets have repeatedly shown that the best assets may be purchased for an excessive price. As a result, putting together an appealing portfolio includes comparing potential returns to one another and looking for the best chances. The opportunity set is ranked using methods that try to estimate how much money an owner might obtain in the future. When all else is equal, one prefers to pay less to obtain more. All investing is based on the concept of value.
While value may arguably encompass all characteristics of appealing investments, a clear goal of Digital Infrastructure investing is to capture the growth of digital while ensuring the soundness of infrastructure. One can believe that emphasising those characteristics can help ensure exposure to the main factors driving the asset class.
More in News